Posts Tagged ‘Medicaid’

NOVEMBER 14, 2016 VOLUME 23 NUMBER 43
Paul (that’s not his real name) needed long-term care. His health and his mental capability had both declined, and he could no longer handle his personal affairs nor take care of himself.

Paul’s assets included a car (titled in his and his daughter’s names) and three Bank of America (its real name) bank accounts. Those assets put him over the $2,000 eligibility limit for Arizona’s version of the federal/state Medicaid program, the Arizona Long Term Care System (ALTCS).

One problem: Paul’s daughter had her name on the bank accounts and on the car. She had the car in her possession, in fact — and she refused to turn it over.

Before he became incapacitated Paul had signed a power of attorney naming his sister as his agent. She went to Bank of America to get control of Paul’s accounts so she could use the money to pay for his care — and ultimately get him eligible for ALTCS coverage. That’s when she learned about a Bank of America rule: both signers on a joint account are permitted access the account, but an agent under a power of attorney may not exercise that authority on behalf of one owner without the other’s consent.

In other words, Paul’s sister could not close the account, remove Paul’s daughter’s name from the account, or even withdraw money to pay for his care — unless his daughter signed a form letting her do that. And Paul’s daughter refused to sign.

Paul’s sister applied for ALTCS coverage on his behalf. Even though he had assets over the $2,000 limit, she argued that those assets were actually unavailable. ALTCS regulations permit applicants to become eligible when assets are unavailable, and Paul’s sister argued that the situation with Paul’s bank accounts was no different from real estate owned jointly with an uncooperative family member, for instance.

ALTCS disagreed. The agency determined that Paul could get access to his own account if his sister just initiated a court proceeding — a conservatorship of his estate. Consequently, ALTCS declined to grant him eligibility.

Paul appealed (through his sister, of course). The court considering the agreed with her, and ordered ALTCS to cover Paul’s care costs. ALTCS appealed from that decision.

The Arizona Court of Appeals last week issued its opinion in the case. It agreed with the ALTCS agency, ruling that Paul could have access to the account by having his sister initiate a conservatorship. As conservator, reasoned the appellate court, she could then withdraw money from the account for Paul’s care — and that made the whole account a countable, available resource. Paul’s ALTCS eligibility was denied.

The Court of Appeals acknowledged that there would be some cost and difficulty getting access to Paul’s money. That, though, was not enough to prevent counting the asset as available. “Any practical inconvenience or accessibility difficulties are not relevant to determining whether assets are to be counted,” ruled the judges. McGovern v. AHCCCS, November 8, 2016.

The decision in Paul’s case simply fails to deal with the practical realities facing Paul and people in his circumstances. The opinion does not make clear how large the joint accounts might have been (except that they obviously exceed $2,000), but the practical reality is that a conservatorship proceeding might well cost thousands of dollars — and could cost even more if Paul’s daughter simply objected. She, after all, would have a higher priority for appointment as conservator than his sister, and her side of the story about the accounts is simply unmentioned in the appellate decision.

Even if Paul’s sister was appointed as conservator, that does not guarantee that she could get access to the accounts. Bank of America might well insist on getting the joint owners’ consent to close an account, or make other changes in the account structure. Paul’s daughter, when faced with the likelihood of losing the accounts, might actually close them out; she would not be hamstrung by the Bank of America rule about powers of attorney, after all.

And Paul’s vehicle? As joint owner, his daughter has absolute right to possess and use the vehicle. Getting it back for Paul, or forcing his daughter to buy out his interest, would almost certainly cost more than the value of the vehicle — and might not be successful even after significant expenditures.

The outcome is especially odd since ALTCS easily recognizes that joint ownership creates problems for other kinds of assets. Joint tenancy real estate, owned with a family member? No problem — eligibility can be granted (though it is described as “conditional” eligibility, requiring the ALTCS recipient to make efforts to sell their fractional interest). But bank accounts — even small accounts worth far less than a piece of real estate — are treated differently. Or at least the bank accounts in Paul’s case were treated differently.

Another irony: Paul had actually died before his case even got to the appellate level. The dispute was about whether ALTCS would have to pay for the care he had already received — and (though the opinion does not clarify this point) it is likely that his care facility is the one left without recourse, not his sister and not his daughter.

Jane Murray (not her real name) died in 2003. She had created a number of trusts, including two for the benefit of her daughter Dana. Jane was very worried about Dana’s future, partly because of a long history of drug and alcohol abuse. She included some strong language guiding the trustee about whether and when to make any distributions. She might not have specifically considered long-term medical care, however.

In October, 2013, Dana entered a hospital in Connecticut as a quadriplegic. At the time, the two trusts contained assets of about $1 million, though the money was not actually available to Dana. The trusts were both “spendthrift” trusts, meaning that neither Dana nor her creditors could force any distribution. Both trusts also contained this language:

The trustee shall pay to my daughter or utilize for her benefit so much of the income and principal of her trust as the trustee deems necessary or advisable from time to time for her health, maintenance in reasonable comfort, education and best interests considering all of her resources known to the trustee and her ability to manage and use such funds for her benefits. In exercising its discretion the trustee shall bear in mind that my daughter has suffered severely from alcohol and drug abuse and that I do not want these trust funds to be used to support a drug or alcohol habit or any other activity which may be detrimental to her in the trustee’s sole opinion.

My daughter’s health, happiness and best interests are to be considered foremost in priority over those who will receive the remaining trust funds on her death. Subject to the above considerations the trustee is encouraged to be liberal in its use of the funds for her even to the extent of the full expenditure thereof.

Clearly, Dana’s trusts would be quickly exhausted on her medical care unless she could qualify for Medicaid assistance, and she had inadequate funds from other sources. Could the trustee simply refuse to make distributions for medical care? Would the trust’s assets be counted as available resources for Medicaid eligibility purposes?

In order to address these concerns, the trustee (in Florida) sought to “decant” Dana’s trusts into new trusts with more explicit language about her long-term care costs. Florida law permits such trust modification, and spells out exactly how it can be done, and the trustee followed the law’s directions. The changes were submitted to a court in Florida for approval, and Dana signed a form giving her consent to the decanting.

The two new trusts for Dana’s benefit included language that clearly made the trust assets unavailable for Medicaid eligibility purposes. In that way, the trusts could be preserved to pay for extra or supplemental needs for Dana’s benefit, permitting her to have a better quality of life. The new trusts, and the history of the decanting, were given to the Connecticut Medicaid office for review.

Shortly after the decanting was completed, an attorney for the Connecticut Medicaid office decided that Dana’s trusts were originally “general support trusts”, making them available resources for Medicaid eligibility purposes. To make matters worse, Dana’s consent to the decanting amounted to a transfer of resources for less than fair market value. That would mean that Dana was ineligible for Medicaid assistance with her long-term care needs until 2021.

After an unsuccessful appeal through the Medicaid agency, Dana filed a lawsuit in Connecticut Federal District Court. She asked for a preliminary injunction prohibiting Medicaid from suspending her benefits, and a permanent order finding that the trustee’s decanting should not be counted as a gift by her.

The federal court ruled on the preliminary injunction question last month. It is only a preliminary ruling, and it is only one trial court — and therefore not of much use to establish precedent. It does, however, suggest how courts might view similar actions in other cases.

The judge hearing Dana’s case decided that there was a high likelihood that Dana will prevail when her case finally does come to trial. If the Medicaid agency were to be allowed to suspend her benefits in the meantime, the damage to her would be irreparable. Accordingly, he ordered that Dana will continue to receive Medicaid benefits while her case proceeds.

Even though we will probably not know the final outcome of Dana’s case for months (or perhaps even years), there are some useful lessons to be learned:

Inclusion of specific “special needs” language in virtually every trust might make sense. Dana’s mother knew that Dana had problems, but apparently didn’t consider the possibility that Dana might end up in a long-term care setting. A single paragraph expressing her wishes for how the money was to be used in such an event would probably have prevented the current dispute, allowing Dana to easily qualify for Medicaid assistance.

Decanting a trust in one state but having an effect in another state, while legally permissible, can lead to confusing results. One problem in Dana’s case was that Connecticut law on the interpretation of the original spendthrift trusts, and the ability to decant the trusts, was different from Florida law. That is not a reason to refrain from using local law, but just a caution that it might make sense to take extra care when multiple states are involved.

State law on decanting might require the consent of the beneficiary, or make it easier to complete the process, but it will generally make sense to avoid having beneficiaries consent. Although Dana’s agreement to the decanting was clearly not a “transfer of assets” as the Medicaid agency’s lawyer suggested, it did give him something to raise as an objection.

Though interpretations by the Social Security Administration usually are followed by state Medicaid agencies, that is not always the case. In Dana’s case, the Social Security rules clearly provide that her mother’s trusts would not be treated as an available resource. The Medicaid agency here disagreed.

Simonsen v. Bremby, Southern District of Connecticut, December 23, 2015.

The bottom line: trust law and Medicaid eligibility law often have uncomfortable intersections. Slightly different circumstances and different states can lead to big differences in outcomes.

The Achieving a Better Life Experience (ABLE) Act initially looked like it would provide important opportunities to people with disabilities. Although much work was left to the Internal Revenue Service, the Social Security Administration and individual states, advocates hoped that it might open up a simple choice for beneficiaries to save money, and enhance autonomy.

The IRS issued its proposed regulations last June, and those hopes appeared to be shaky. The proposed regulations required a lot of administrative oversight, and made it look like the cost of managing ABLE Act accounts might make them look unattractive to individuals, family members and even state governments.

This week the IRS reconsidered, and issued something it calls “interim guidance” on ABLE Act regulations. The proposed regulations will now be revised to focus on ease of administration, opening up possibilities for the future, once states have finalized their ABLE Act plans.

What changed? Three important things, listed below. In addition, the Social Security Administration (which also has to adopt ABLE Act regulations) has given an exciting hint about how it might interpret the Act — making the possibilities for positive impact even greater. Here are the new developments:

Simplified reporting by ABLE Act custodians and state programs. The proposed regulations published in June would have required someone — presumably the ABLE Act account managers in each state — to review each distribution from an ABLE Act account to determine whether it was proper. Advocates were concerned that this would dramatically increase the cost of ABLE Act programs (perhaps to the point of crippling those programs), and slow down distributions for needed — and usually unquestioned — disability expenditures. The IRS heard that complaint, and has let us know that the final regulations will require the ABLE Act beneficiary to keep track and file appropriate tax returns. That’s excellent news for the usefulness of ABLE Act accounts.

Detailed information about contributors no longer required. The original proposed regulations would have required any person making a contribution to an ABLE Act account to provide a Social Security number. The IRS’s concern: the possibility that excess contributions might be made in a given year, and earnings would need to be reported when the excess was returned. Instead, the new regulations will allow contributors to skip the Social Security number requirement so long as the state program has a mechanism to prevent excess contributions in the first place.

No need to prove disability to the ABLE Act custodian. An ABLE Act account can only be opened for a person who has a disability. That will usually mean that the beneficiary is receiving Supplemental Security Income (SSI) or Social Security Disability (SSD) payments, but some beneficiaries will have to establish their eligibility by providing diagnosis information — and they will have to show that their disability began before age 26. The original regulations would have required the ABLE Act custodian to collect, review and maintain those medical records. After advocates pointed out that this was unnecessarily complicated and might sometimes even be dangerous, the IRS changed direction and decided to require that the person opening the ABLE Act account should simply be required to swear that the beneficiary qualifies, under penalty of perjury. The same record-keeping will be required, but records can stay with the beneficiary or family members instead of being held in a central office at a financial institution or state agency.

Then there is the potentially excellent news from the Social Security Administration. While SSA’s proposed regulations have not been issued, there are hints that they will agree that ABLE Act distributions for housing-related expenses are not disqualifying for SSI purposes. That could mean terrific possibilities for family assistance with the cost of housing — a perennial problem for SSI recipients under current regulations. It’s too early to know for sure exactly how Social Security will decide this question, but it’s exciting news nonetheless.

Before we leave the topic, let’s review the ABLE Act itself. There is plenty of information available on the history of the Act, how it changed over time, and the financial compromises Congress made in passing the Act, but the real importance is how the Act will work as finally adopted. Here are some highlights:

States can set up ABLE Act accounts, but are not required to do so. Arizona is moving more slowly than most other states, but is considering how to authorize an ABLE Act program. Advocates are hopeful that patience will be rewarded in the next legislative session, beginning in January, 2016.

Persons with disabilities — and their families and concerned friends — can make a total of up to $14,000 in contributions to an account in a given year. The $14,000 maximum is as to the total of all contributions, not the contribution for each person. Still, that raises the possibility of about $1,000/month in assistance for a person receiving SSI and/or Medicaid (AHCCCS, in Arizona), or for significant savings by the person with a disability.

Total contributions over the life of the ABLE Act account are capped, but at very high numbers (currently over $400,000 for Arizona). If the ABLE Act account grows to be more than $100,000 there are other problems, but that simply can’t be an issue for the next seven years or so.

The ABLE Act account will ordinarily be managed by the person with a disability, not by donors, family members or others. There will be special procedures for beneficiaries who are minors or incapacitated, but those rules aren’t yet written.

One big downside: whatever is left in the ABLE Act account at the beneficiary’s death will revert to the state, to the extent that Medicaid/AHCCCS benefits have been received. That will make the ABLE Act account unattractive in some situations, but not by any means in all cases.

There is more — lots more. But the new direction from the IRS is promising, and makes advocates for people with disabilities hopeful about the future of ABLE Act accounts. Stay tuned.

Health care programs for the elderly, the poor and the disabled can be complicated and confusing. We frequently find that clients are unclear about the differences — in eligibility and in coverage — between Medicare and Medicaid, for instance. Add in the fact that Arizona calls its Medicaid program AHCCCS (the Arizona Health Care Cost Containment System) but also ALTCS (the Arizona Long Term Care System) for some parts of the program, and the confusion begins to climb. Let us try to confuse things just a little bit more before (we hope) introducing some clarity.

First, the key distinctions between the two biggest government health care programs:

Medicare is a federal program, with very little state involvement (other than what we’ll be detailing in a moment). Medicaid is a joint federal-state program, administered by the individual states but funded mostly by the federal government.

Medicare beneficiaries are over age 65 OR they are receiving Social Security Disability Insurance payments. In other words, it is intended to cover the elderly and the disabled. Medicaid beneficiaries, on the other hand, may or may not be elderly or disabled — but they must be poor (with the state’s definition of “poor” quite variable).

Assets and income are irrelevant to Medicare coverage (except, of course, that if you are able to work you can’t be “disabled” in order to qualify before age 65). Medicaid pays close attention to income (whether earned from wages or received from investments, by gifts or otherwise) and assets (though there are differences state-to-state).

Medicare beneficiaries frequently have to pay co-payments (a share of the cost of a doctor’s visit, for instance), deductibles (the first $XX of a year’s medical costs, with XX being highly variable) and premiums (a flat amount for Medicare Part B coverage, for instance). Other than fairly nominal copayments, Medicaid beneficiaries usually do not have to pay any significant share of their medical costs; once eligibility is established, Medicaid picks up the entire cost.

Obviously, a person over age 65 might also have limited resources and income. A person with a disability might, as well. And a Medicare beneficiary might need medical care not covered by the program — like nursing care, for instance. There are five little-known programs available to help people who qualify for Medicare but need help with their premiums, deductibles or co-payments:

The Qualified Medicare Beneficiary (QMB) Program. The most generous of the four is the QMB program. It pays Medicare Part A and Part B premiums, and all co-payments and deductibles. QMB recipients also automatically qualify for “extra help” with their Medicare Part D premiums. In order to qualify, the applicant must have income of less than the federal poverty level (in 2015, that figure for a single person living in the continental U.S. is $11,770/year, or $981/month — for a married couple it is $15,930/year or $1,328/month) plus $20. In other words, a single person with income of less than $1,001/month will qualify. In addition, in many states (not including Arizona, which does not have an asset limitation for QMB benefits) the QMB applicant must have assets of less than $7,280 (for a single person) or $10,930 (for a married couple). Not counted among the assets in states which impose an asset limitation: the applicant’s home, car, household contents and a few other items (they use the same exclusions applied to the Supplemental Security Income (SSI) program).

The Special Low-Income Medicare Beneficiary (SLMB) Program. SLMB applicants can have up to 120% of the federal poverty income figures (plus the $20 that is disregarded — in other words, up to $1,197/month for a single person or $1,613 for a married couple), but are held to the same asset levels as those in the QMB program. Upon qualifying, the SLMB applicant will have Medicare Part B premiums paid — that will amount to a $104.90 monthly benefit for most Medicare recipients. SLMB beneficiaries also get “extra help” with their Part D premiums.

Qualifying Individuals (QI). A small group of people who do not qualify for any other Medicaid program might get help with their Medicare Part B premiums, if their income is between the $1,197 limit for a single person under SLMB and $1,345 (representing 135% of the federal poverty level, plus that ubiquitous $20). A married couple may have up to $1,813/month. As with QMB and SLMB, if you qualify for QI you also automatically get “extra help” with your Part D premiums.

Qualified Disabled and Working Individuals (QDWI). This one requires a little more explanation. For someone who once received Social Security Disability payments but returned to work, QDWI can pay the Medicare Part A premium (that’s $426/month in 2015). Income limits are up to 200% of the federal poverty guidelines (plus that $20), or $1,982 for a single person or $2,675 for a married couple. The most important thing about QDWI, though, is how few people will qualify — Arizona’s AHCCCS program notes that almost every QDWI recipient would also be eligible for the much more generous “Freedom to Work” program.

“Extra Help.” Programs that help pay co-payments and deductibles for Medicare’s Part D (drug) coverage go under the friendly name “extra help.” Any QMB, SLMB, QI, or SSI recipient will also get “extra help.” In some cases the program might reduce co-payment amounts but not eliminate them.

These programs can be bewilderingly complex, but they mean real benefits to recipients. Eligibility or the amount of benefit may also change year-to-year, as the beneficiary’s income goes up or down.

We often find ourselves reassuring clients that the law makes sense. It may not be obvious or intuitive, but we can usually explain why some legal principle developed the way it did, and why it would be a bad thing if it were otherwise — even if that might mean problems for a given case in which we are involved. Once in a while, though, the system is just arbitrary, foolish and misguided. What really hurts is when a judge declares that an arbitrary corner of the law should be that way because it is not arbitrary.

Case in point (literally): Sandi Dowling (not her real name), a 26-year-old woman living in South Dakota. Sandi was in a terrible auto accident in 2006, when she was 19. As a result of a traumatic brain injury suffered in that accident, Sandi qualified for Supplemental Security Income (SSI) and her state’s Medicaid program. She also filed a civil lawsuit, seeking to recover at least some of the costs of her care, pain, suffering and future lost income.

Sandi gave her parents a power of attorney so that they could handle her lawsuit and any other financial issues she might face. So far, there is nothing in Sandi’s story that would not be faced by thousands of other young people injured in an auto accident.

Then Sandi’s lawsuit was settled. She netted $429,259.41 from the settlement — a sum which would normally knock her off SSI and probably cost her Medicaid eligibility, as well. That amount, though large, was not enough to provide the care Sandi actually needed, however, and so it was important for her to continue to qualify for SSI and Medicaid.

Fortunately, there is a way to do that. A self-settled special needs trust can be set up for someone in Sandi’s circumstance, and the money transferred to it. The transfer is not disqualifying, and the contents of the trust are not counted as available for SSI or Medicaid eligibility purposes. But the trust has to be set up properly.

One key rule about such trusts: they must be established by a parent, grandparent, guardian or court. Fortunately, Sandi’s parents were both deeply involved in her life and her care; they could sign the trust documents, and they did. They established the trust and, using their power of attorney, transferred her settlement proceeds to the trust’s name.

Imagine their surprise when the Social Security Administration ruled that the trust disqualified Sandi from SSI benefits. The eligibility worker, relying on directives from the SSA central office, ruled that when her parents established Sandi’s trust they weren’t her parents — they were her agents under the power of attorney. Her SSI was cut off (and, presumably, her Medicaid eligibility as well) and she was ordered to repay Social Security the money she had received since her personal injury settlement arrived.

Two years of legal wrangling ensued, with the Social Security Administration insisting that it makes sense to rule that Sandi’s parents weren’t her parents when they signed the trust. An Administrative Law Judge did (graciously) rule that she did not have to repay the money she had received before the family received notice of the overpayment, but the denial of eligibility persisted.

Finally, in an attempt to resolve the impasse, Sandi and her parents turned to the local courts. They sought and obtained a court order approving the trust and amending it in some technical ways; the judge also ruled that the modification of the trust should date back to the original trust date (what is called “nunc pro tunc” in lawyer-talk). Problem solved, right?

Not at all. The Social Security Administration, continuing to apply its rules rather than the English language, ruled that the court had not “established” the trust, but only “approved” it. Two more years of legal wrangling ensued, with the Social Security Administration insisting that this interpretation of language also made sense.

Eventually Sandi and her parents exhausted their appeals through the Social Security Administration, and they finally turned to the Federal District Court in South Dakota. They filed an appeal of the final Social Security ruling, and argued that it was arbitrary and capricious of Social Security to insist that (a) Sandi’s parents weren’t her parents when they signed the trust and (b) the local court had not “established” the trust but only “approved” it. Finally, they thought, they were going to get a decision from someone who would apply some common sense rather than absurd rule interpretations.

There’s still no joy in Madison. District Judge Karen E. Schreier upheld the Social Security position, finding that its interpretation of the language of the federal statute was not arbitrary. In fact, she held, having clear rules is the opposite of arbitrary — never mind that the clear rules are silly. Draper v. Colvin, July 10, 2013.

What are the lessons to be learned from Sandi’s story, and why are we telling you about it? Normally we do not report on trial court decisions here — and even though this is an appeal from a Social Security ruling, it is the lowest level of the federal court review of that ruling. It might well be appealed; in the meantime, it should not be cited as precedent in other cases (and especially in other jurisdictions, like the Federal District Courts in Arizona). But it still gives us pause and an opportunity to point out several important principles:

Creating (“establishing,” in the language of the federal statute) special needs trusts can be difficult to do correctly, and technical rules have to be followed.

Though it may seem obvious that something ought to be done in an efficient, effective and legal way, sometimes the requirements are actually counter-intuitive, or are interpreted in a counter-intuitive way.

The Social Security Administration (and, often, state Medicaid agencies) are always on the lookout for ways to challenge special needs trusts.

Doing things wrong not only causes problems with government programs, but is hard to fix. Witness Sandi’s odyssey, with four years of litigation and multiple attempts to satisfy Social Security’s arcane rules — all the while with Sandi not qualifying for or receiving SSI until first the agency and then the courts work through their interpretations.

Even when a fix is finally found, it likely will not relate back to the original date of the problem. Legal expertise is important early and throughout the administration of a special needs trust.

Much of the court opinion in Sandi’s case deals with the language of the POMS — Social Security’s “Program Operations Manual System.” That’s where the worst language offenders live, and it is crucial for practitioners to be familiar with the structure, holdings and, yes, silliness built into the POMS.

“When in doubt about who’s to blame,” Craig Ferguson is reported to have said, “blame the English.” We aren’t sure he meant the language, but still it seems apt.

JULY 8, 2013 VOLUME 20 NUMBER 25
Under the English common law (inherited, to a greater or lesser degree, by all the states of the U.S.), a husband was obligated to support his wife and children. Because women could not legally enter into enforceable contracts, a person who provided goods or services to a woman (or a minor child) on credit might not be able to enforce the collection of the debt. Even if a merchant sold (for instance) food to a married woman on credit, the merchant ran the risk that he might never collect on the debt.

This commercial problem gave rise to a principle of the English common law called “the doctrine of necessaries.” If a merchant provided goods or services to a married woman or minor child, he would be able to collect from the husband/father — if the sale was for “necessaries.” That usually meant food, shelter, clothing, medical care and the like.

Today, where it still exists, the doctrine of necessaries is applied in a gender-neutral way. A husband OR wife might be sued for the “necessaries” provided to his or her spouse. One key step before bringing the action, though, is that the spouse to whom the necessaries were provided must first be determined to be unable to pay for his or her own care.

That neatly sets up the scenario in a recent Indiana Court of Appeals case. Marjorie and Orson (not their real names) were married; Marjorie was admitted to a nursing home. Eventually Marjorie was made eligible for Medicaid, which paid for much of her nursing home care. By the time of her death, though, she had a $5,871.40 unpaid bill at the nursing home.

The nursing home tried to collect from Marjorie’s family. They wrote to her daughter Wilma, who had signed her into the home (and had, incidentally, foolishly signed the admission papers as “guarantor”). They wrote to Orson. They did not get paid. Then they sued Orson and Wilma. When Orson died before the litigation was resolved, the nursing home made a claim against Orson’s estate. The nursing home’s argument: under Indiana’s version of the doctrine of necessaries, he was responsible for his wife’s nursing home bill, and it should be collectible from his estate.

The trial judge denied the nursing home’s claim, reasoning that the home should first have brought legal action against Marjorie (while she was still alive) or her estate. Besides, ruled the trial judge, it was Wilma who had signed her mother into the nursing home, not Orson.

The Indiana Court of Appeals upheld the denial of the claim. The three judges deciding the case first noted that the doctrine of necessaries might no longer be relevant in any event. If it is, though, the person making a claim under it must go through the steps required to pursue the claim. The nursing home should first have sued Marjorie or her estate; as a creditor, they could have opened an estate in Marjorie’s name to officially determine that she died without assets. Just saying that she had nothing, or even that she was a Medicaid patient and so must not have had anything, was not enough. Hickory Creek at Connersville v. Estate of Combs, June 27, 2013.

Let us assume for a moment that Marjorie’s estate was in fact insolvent. If the nursing home had initiated a probate proceeding, determined that she had no assets and then filed against Orson (and later his estate), they might have collected. But now they will be precluded from doing so; the time for presenting claims against Orson’s estate will have expired, and even if a new filing was made to establish Marjorie’s lack of assets there would be no opportunity to pursue the estate.

It is less clear (at least from the Court of Appeals decision) whether the nursing home could still pursue daughter Wilma. She did sign the admission document, and as “guarantor.” The resolution of the claim against her father’s estate does not necessarily resolve the nursing home’s lawsuit against Wilma. The lesson for others is clear: if you sign a nursing home admission agreement for another person (as, say, agent under a power of attorney, or conservator of the estate, or next of kin), make sure you cross out any reference to being a “guarantor” or “responsible party.”

But back to the doctrine of necessaries: does it still exist in Indiana? Yes, according to the Court of Appeals — though its vitality is doubtful.

What about Arizona? Remember that Arizona is a community property state, which means that the obligations of one spouse may not always be the responsibility of the other. Does this mean that the doctrine of necessaries does have vitality in Arizona? Probably not — though there are three reported Arizona Court of Appeals decisions about the doctrine. All three of them, however, involve failed attempts to apply the doctrine to care provided for minor children. In two of them, in fact, the doctrine was raised by out-of-state government agencies who provided welfare benefits to minors, and sought recovery against an Arizona father. Neither court allowed the doctrine of necessaries to apply — but mostly because the agencies have perfectly good rights to recovery under federal child-support rules.

Incidentally, the doctrine of necessaries is different from (even though similar to) so-called “filial support” or “filial responsibility” laws (we have provided information about filial support laws before). The concept of necessaries grew from a common law notion, and was originally applied exclusively to the provision of goods and services to married women and minor children. Filial support laws are state enactments that create a different liability — a child might be liable for an impoverished parent’s care under those newer laws, where they exist.

FEBRUARY 18, 2013 VOLUME 20 NUMBER 7
Seniors are subjected to a constant drumbeat of advice: make sure you have no assets in your own name, or you will lose them to the nursing home. Transfer everything to your children to “protect” your assets. Is it good advice?

Such transfers are not likely to work, given the five-year look-back period for Medicaid eligibility. In other words, if you make such a transfer shortly before you go to the nursing home, you won’t be eligible for government assistance with your long-term care costs for up to five years — or even longer, in some cases.

Even if you successfully “protect” your assets from your own nursing home costs, you have just subjected them to the recipient’s creditors and claims.

That second item was the one that cost Deborah Smith (not her real name) her entire life savings. In 2002 Ms. Smith transferred her brokerage account, worth about $200,000, into her daughter’s name. Why would she do such thing? She later testified that it was because she understood that she could not have any assets in her own name if she later wanted to qualify for Medicaid assistance with her long-term care costs. She wanted to protect her money from that possibility, and also from any “scammers” who might try to talk her out of her funds.

Ms. Smith, 71, lives — and still works as a nursing assistant — in the small Arizona town of Cottonwood. She and her husband owned a small pharmacy there, and sold their business to a large chain store in 2002, just before her husband’s death. The proceeds went into an account in their joint names, and was transferred to Ms. Smith’s name upon her husband’s death.

Later in that same year, while visiting her daughter in Virginia, Ms. Smith decided to put her entire life savings into a brokerage account in her daughter’s name. The daughter’s Social Security number was listed on the account, the daughter paid taxes on the income, and she was listed as the sole owner. Ms. Smith did have a debit card on the account, which she could (and did) use to pay for purchases.

In 2010, after the stock market dropped precipitously, Ms. Smith’s daughter moved the money into a new investment vehicle. She paid over $18,000 for a complicated trust arrangement (called “Ultra Trust®“) in order to protect the money from creditors. Although she initially contacted the purveyors of the trust instrument, Estate Street Partners, LLC, (“…learn how to Hide Your Assets despite what your lawyer told you…”), she received documents for her mother’s signature from lawyer John Libertine. The documents included a trust naming a third person as trustee, and a private annuity agreement.

Meanwhile, Ms. Smith’s daughter was having trouble with her own investments. She owned a piece of investment real estate with a second mortgage. When that loan’s balloon payment came due, the property had diminished in value to the point that she could not refinance — so she declared personal bankruptcy. The question then became whether her mother’s brokerage account was part of her bankruptcy estate.

The bankruptcy court ruled that yes, the account did belong to Ms. Smith’s daughter. Although both women testified that they thought of the money as belonging to Ms. Smith, and that the daughter was just holding it in a sort of trust arrangement for her mother, the bankruptcy court noted that Ms. Smith had said she transferred the money in order to make sure he had no assets and could qualify for Medicaid if she ever needed it. Here is the bankruptcy judge’s telling analysis:

“After all, [Ms. Smith and her daughter] argue, why would a woman who was advancing in years, nearing retirement and working for an hourly wage, give the entirety of her retirement nest egg to her daughter? The answer lies in Ms. [Smith]’s own testimony — she wanted to remove the funds from her own name and place them into the name of her daughter, in order to be eligible for Medicaid and other publicly available benefits, should the need arise. Ms. [Smith] can’t have it both ways — she can’t part with title for purposes of Medicaid eligibility, and at the same time claim that she retained an equitable title to the asset. To allow this kind of secret reservation of equitable title would be to sanction Medicaid fraud.”

The bankruptcy judge, incidentally, also completely dismissed the effect of the trust arrangement established by Ms. Smith’s daughter. The end result? Ms. Smith’s life savings were swept into the bankruptcy proceeding to satisfy her daughter’s investment losses. In re Woodworth, US Bankruptcy Court for the Eastern District of Virginia, February 6, 2013.

JANUARY 21, 2013 VOLUME 20 NUMBER 3
Administering a “special needs” trust can be a challenge. The rules often seem vague, and they occasionally shift. What may seem like a simple question might actually involve layers of complexity. Sometimes an expenditure might be permissible under the rules of, say, the Social Security Administration, but not acceptable to AHCCCS, the Arizona Medicaid agency — or vice versa. Trustees work in an environment of many constantly-moving parts.

Take two questions we have been asked lately:

I am trustee of a self-settled special needs trust for my sister. Can I pay her credit card bills?

Maybe (don’t you just love lawyers’ answers?). Let’s break the question down a little bit.

First, have identified the trust as “self-settled.” That means the money once belonged to your sister (it might have been an inheritance, or a personal injury settlement, or her accumulated wealth before she became disabled). That also means the rules are somewhat more restrictive.

We will assume that the bills are for a credit card in her name alone. If the card belongs to someone else, the rules may be different. Not many special needs trust beneficiaries can qualify for a credit card; when they can, it can be a very useful way to get things paid for (as you will soon see).

The next question requires a look a the trust document itself. It might be that it prohibits payments like the one you would like to make. That would be uncommon, but not unheard of. We will assume that the trust does not expressly prohibit paying her credit card bills.

What benefits does your sister receive? Social Security Disability and Medicare? No problem. Supplemental Security Income (SSI) and AHCCCS (Medicaid)? Could be a problem.

Next we need to know what was charged to the credit card. Was it food or shelter? If it was used for meals at restaurants, or grocery shopping, or for utility bills, you probably do not want to pay the credit card bill from the trust. If you do (and assuming the trust permits it) then you will face a reduction of any SSI she receives, and possible loss of AHCCCS benefits.

Were the credit card bills for clothes, medical supplies, gasoline for her vehicle, even car repairs? There is probably no problem with paying the credit card statement. Even home repairs should be OK in most cases (just not rent, mortgage, utilities, etc. — and the rules might be different if anyone else lives with your sister).

As you can see, what started out as a simple question turns out to have a lot of complexity. You might want to talk with a lawyer about your sister could use the credit card. When it works, though, it can be quite a boon — it is an easy way to get gas into her car and clothes on her back.

Can my special needs trust pay the security deposit on my new apartment?

What an interesting question. We think the answer is probably “yes.”

Once again we need to look at the trust document itself. Was it funded with your own money (like a personal injury settlement), or was the trust set up by a relative or friend with their own money? Is there language prohibiting payment for anything related to your apartment?

Assuming no trust language prohibits the payment, we can turn to the effect such a payment would have on your benefits. Social Security Disability and Medicare? Once again, no problem. SSI and AHCCCS/Medicaid? Your benefits might be reduced, but the payment can probably be made.

The key question is whether a “security deposit” is “rent.” Arguably, it is not — it is advance payment for cleaning. A special needs trust — even a self-settled special needs trust — can pay for cleaning. Social Security’s rules treat payment of “rent” as what’s called “In-Kind Support and Maintenance (ISM).” This payment, we think, should not be characterized as ISM.

If it is not ISM, then it should have no effect on your SSI or your AHCCCS benefits. If it does, it might simply reduce your SSI payment (by the amount of the deposit, but capped at about $250). So long as you still get SSI it should not have any effect on your AHCCCS benefits.

Are these rules unnecessarily complicated? Yes. Does it sometimes end up costing more in legal fees to figure out what to do than it would to just pay the bills? Yes. Welcome to the complex world of special needs trust administration. Would it be possible to write simplified rules that allowed limited use of special needs trust funds while saving a bundle on administrative expenses? Yes — but please don’t hold your breath while waiting for them.

AUGUST 6, 2012 VOLUME 19 NUMBER 30
The Director of Arizona’s Medicaid program (AHCCCS – the Arizona Health Care Cost Containment System) testified last month before the United States Senate Special Committee on Aging, and his remarks caught our attention. Director Thomas Betlach was testifying about “dual eligibles” — people who are eligible for both Medicaid (AHCCCS) and Medicare. He particularly was talking about Arizona’s unusual approach, which utilizes managed care programs as the centerpiece for Medicaid recipients.

Mr. Betlach’s testimony is interesting, at least to people with a strong policy bent. You can read his remarks online and decide if that includes you. But we were not as focused on dual eligibles and managed care as we were on his description about the Arizona program as it actually operates.

For instance, Mr. Betlach reported that 72% of Arizona’s elderly and physically disabled (his term) Medicaid recipients are now receiving their care at home or in a community-based care setting — as distinguished from institutionalization in a nursing home or similar facility. For Medicaid recipients with a developmental disability, that figure increases to 98% — in other words, only two percent of Arizona’s Medicaid-subsidized patients with developmental disabilities are in long-term care institutional settings.

Whatever you may think about Arizona’s history of care for vulnerable patients (and we are not always big fans), that is pretty remarkable. Of course a significant percentage are receiving their care in assisted living facilities or adult care homes — not nursing homes, but not exactly home, either. Mr. Betlach’s testimony did not segregate out the numbers or percentages for those populations, but we are still impressed with the high percentage being cared for in settings other than nursing homes.

Another interesting element of Mr. Betlach’s testimony: the managed-care emphasis in Arizona’s AHCCCS program has helped increase the percentage of managed-care patients in Medicare, and has held down the costs of (among other things) prescription drugs and the long-term care costs themselves. And the savings at least arguably demonstrate better care: Arizona’s Medicare/Medicaid patients have a one-third lower hospitalization rate and a 21% lower readmission rate after release from hospitalization.

Want to know more about AHCCCS, the Arizona Long Term Care System (ALTCS) and Home and Community Based Services (HCBS)? You might want to look at the AHCCCS reports page. From there you can link to reports prepared for the federal government, for the state legislature and other reports. One we found particularly interesting: a report to the federal government on HCBS care (the latest year available is calendar year 2010).

Haven’t yet satisfied your inner wonk? Try the population statistics maintained by AHCCCS on its members and trends. Our favorite: we did not realize that the number of AHCCCS/ALTCS patients with developmental disabilities (24,654) was so close to the number of members listed as “elderly” or “physically disabled” (27,941). The former category seems to be growing ever-so-slightly faster than the latter, and that surprised us as well.

JUNE 25, 2012 VOLUME 19 NUMBER 24
A recent Arkansas Court of Appeals case reminds us (yet again) how important it can be to plan for the possibility of a future disability in your family. Here’s the background (with names changed to help protect internet privacy): Ruth Olsen, like thousands of other seniors, created a revocable living trust. She provided for gifts for nine grandchildren, including her granddaughter Christie.

When the trust was signed (in 2009), Christie was in her early 20s and living in another state. A year later she was diagnosed as suffering from schizophrenia and a guardian was appointed. Just one month after the guardianship Ruth Olsen died.

Christie was receiving Medicaid benefits from the state where she lived. Her grandmother’s trust did include language indicating that the trustee should have discretion about whether or not to distribute either income or principal of her trust share to her or for her benefit, but it did not include specific language making clear that Ms. Olsen intended the trust to be a special needs trust.

The trustee of the trust is a bank headquartered in Arkansas, where Ms. Olsen lived and died. The trustee asked the local courts to allow the trust for Christie to be modified — just to make clear that it should be a special needs trust, and that the trustee should be required to try to protect Christie’s eligibility for Medicaid in her state.

The trial judge in Arkansas refused. He pointed out that — in Arkansas, at least — the Medicaid program was intended to be available only for people who had not other access to resources. According to the trial judge, it would violate the public policy of the State of Arkansas to allow court modification of a trust to prevent it being counted as a resource for Medicaid eligibility purposes.

The Arkansas Court of Appeals agreed (more accurately, it did not disagree — but the effect is the same). The appellate court declined to follow the lead of the Washington State Court of Appeals — the Washington court had allowed just such a modification, and in very similar circumstances.

The Court of Appeals cited a number of Arkansas cases in which courts refused to allow transfer of an individual’s assets into a self-settled special needs trust — thereby preventing eligibility for Arkansas Medicaid. Ruth Olsen’s trustee argued that (a) this trust was not a self-settled trust but a third-party trust, and the request was for clarification of the trust’s terms, not creation of a trust, and (b) the law and public policy in question should be those of the state where Christie lived, not Arkansas. Those arguments did not prevail. The appellate court declined to reverse the trial judge’s finding. Matter of Owen Trust, June 13, 2012.

We do not practice law in Arkansas (for which, incidentally, we are thankful), but there are a number of important points we take away from the Arkansas court decisions:

Courts often have a very hard time clearly separating “self-settled” special needs trusts from “third-party” special needs trusts. That should not be surprising — trust settlors, trustees and lawyers often have the same problem. It is confusing. But one key element should be kept in mind: if you are setting up a trust with your money for the benefit of someone who has (or might have) a disability, you are permitted to impose appropriate restrictions to make sure the money is not treated as an available resource for public benefits calculations.

Even if a formal finding of disability has not been made, it is prudent to include strong “special needs” trust language in your estate plan (your will or trust). That way you protect the availability of the money you leave to a child or grandchild and their eligibility for public benefits.

State laws vary. Some states (like Arkansas) take a dim view of transfers into special needs trusts — or, apparently, of efforts to ensure that even a third-party trust has appropriate provisions. Other states (like Washington) would more likely permit a clarification such as the one Ruth Olsen’s trustee proposed. Where is Arizona in this continuum of state approaches? Much closer to Washington than to Arkansas. In general, states which have adopted the Uniform Trust Code (about half of the states have) are more likely to allow modifications like the one proposed here — but not always (Arkansas has adopted the Uniform Trust Code, but it didn’t help Christie).

Just to keep things confusing, it is not even clear that the proposed modification is necessary. The state Medicaid rules in Christie’s new state are more important in analyzing her grandmother’s trust than are the state laws in Arkansas. And Christie might well move to yet another state before she actually makes a Medicaid application. Her grandmother’s trust — even though not perfectly written — might well be treated as a third-party special needs trust, depending on the state (and, candidly, on the eligibility worker, the law at the time of her Medicaid application and perhaps a handful of other factors).

What is the ultimate take-away message? Plan carefully. Talk with a qualified lawyer — one who knows something about disability, public benefits and the surprises that can be in store. Make sure you fully share information about your family, your concerns, and your wishes. Learn local laws and practices. Having a disability — or having a family member with a disability — can make planning much more difficult and complicated, and the results much more uncertain.